Milan: Bank of Korea (BOK) Governor Rhee Chang-yong expressed his concern over South Korea's declining political and economic landscape during a press briefing in Milan. Rhee was attending the Asean Plus Three finance ministers and central bank governors meeting when he addressed the ongoing challenges facing Korea's economic leadership.
According to Yonhap News Agency, Rhee highlighted the difficulties he faced in explaining the political vacuum in Korea's economic leadership to international counterparts, given the nation's reputation as an advanced economy. Rhee, a member of the "F4" group, which coordinated macroeconomic and financial policy, shared these concerns alongside the chair of the Financial Services Commission and the head of the Financial Supervisory Service.
Rhee emphasized that political uncertainty is negatively impacting investment and spending in the country. While not yet a crisis, the situation is exerting a downward pressure on the economy, he noted. The urgency to resolve this issue is evident in Korea's economic data, as the economy contracted by 0.2 percent in the first quarter compared to the previous quarter and experienced a year-on-year contraction-a phenomenon last observed during the 1997 Asian financial crisis, the 2009 global financial crisis, and the 2020 pandemic.
Government spending, which could potentially mitigate the economic downturn, has not met expectations. The government's spending from January to February amounted to 116.7 trillion won (US$84.4 billion), a decrease of 10.5 trillion won compared to the same period last year. The budget execution rate was 17.3 percent, a decline of 2.6 percentage points. Despite maintaining the previous year's overall first-quarter spending rate of 41.7 percent, the government's efforts have failed to invigorate the economy amidst the declaration of martial law and ongoing unrest.
The absence of a sitting deputy prime minister for economic affairs, following Choi's resignation, has further complicated economic coordination efforts. The Economic Ministers' Meeting and interministerial coordination bodies have lost momentum, with the "F4" group's influence waning under the first vice minister of finance. Until a new administration is inaugurated and Cabinet nominees undergo confirmation hearings, a complete policy leadership vacuum is likely to persist.
Rhee compared the current situation to "entering a dark tunnel," a phrase he previously used following the Donald Trump administration's tariff hikes. With the presidential race underway, he urged political leaders to address the national policy crisis seriously. He cautioned that given Korea's fragile international credibility, political parties should avoid making campaign pledges that could place undue strain on public finances.